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Rupee riddle for Infy numbers

Mumbai, Oct. 9: The real impact of an appreciating rupee against the dollar will perhaps be felt tomorrow when software services major Infosys Technologies announces its second quarter results.

Even as a net profit figure of Rs 295-297 crore is being projected as a consensus forecast, it is the impact of the strengthening rupee on the margins of Infosys which will be the most watched out for.

The Indian currency, which today finished at a new three-year closing high of Rs 45.26/27 per dollar, has risen about 6 per cent this year.

The rupee’s appreciation has led to fears that profit margins of software services exporters like Infosys will remain squeezed. Domestic software service companies earn about 70 per cent of their revenues from the United States.

This fear stays despite a belief that billing rates for domestic software service companies, who have been focussing on strong volume growth, have not been falling incrementally.

“There are a few crucial points which observers and the entire stock market will be watching for when Infosys announces its results. These include the impact of a rising rupee, the recruitment numbers and whether the company would raise its guidance,” an analyst at a leading private sector bank said.

However, differences persist among analysts as to the precise impact of the rising rupee on Infosys’ numbers. While CLSA Asia-Pacific Markets has said in a recent report that it was cutting its weightage for domestic software firms on concerns that the appreciating rupee would impact profit margins, there are a few who point out that its effect will be minimal on Infosys.

According to Apurva Shah, senior research analyst at Prabhudas Lilladher, the impact of the rupee’s appreciation against the US greenback will not affect the margins of Infosys in a big way. “Infosys has substantially hedged its receivables. Therefore, the impact will not be bad,” he added.

In July, Infosys had said that it had hedged against the possibility of a rising rupee. The company had then sold about $250 million forward for the next two quarters.

Apurva, who is more optimistic about Infosys declaring better numbers than the consensus estimate, expects the company to declare a net profit of Rs 305 crore and a topline of Rs 1,160 crore for the second quarter. During the same period last year, the company had declared a net profits of around Rs 250 crore.

Yet another factor, which has assumed significance pertains to its recruitment numbers. Analysts here point out that strong recruitment numbers would send out positive signals to the market.

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